Retail – not ruined, just reinventing

In this guest posting, Simon Burrett lays down how retailers can win back shoppers.

If we’re to believe the headlines, retail is headed for ruin. Every month there’s another Darrel Lea going under. Every other week someone from DJs or Myer is talking up how it’s the “toughest conditions in 25 years”. And this month, Gerry Harvey raised the white flag when he declared Harvey Norman was getting out of technology products after announcing “the worst result we’ve ever posted”.

But behind the bad news headlines are a number of more telling Truths.

Truth #1: Big Retail Needs Rethinking

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Fact is, the dominant retail model of the past 15 years is now hopelessly out of tune. Since Roger Corbett rode Project Refresh more than a decade ago to generate double-digit year-on-year growth for Woolworths, Big Retail in this country turned its focus to the back office.

Australian retailers have spent millions of dollars on world’s best practice systems in warehousing and logistics. Executive bonuses have become geared around finding more efficient means of getting product to the store, on the shelves and in front of the consumer.

This is Big Retail – retail at its simplest and most efficient: build a shop, stock it efficiently and make a little money on big volumes driving out the door. “Stack ‘em high and watch ‘em fly!”

And it worked. It worked for Gerry Harvey for 15 years. It worked well enough for Myer to be bought and sold. It worked for Bunnings and it worked for all those other Big Retail brands we’ve come to know and appreciate.

But what worked then won’t work now. Then we were living in the era of “purchase promiscuity” – when consumers created their own demand through unprecedented levels of personal debt.

But now, the customer has changed. Debt’s become a dirty word and Australians are saving more than ever.

The Big Retail model does not work without Big Debt driving demand. Which leads us to the second harsh reality.

Truth #2: Retailers Have Forgotten How To Retail

When I was growing up in retail, we used to talk about retail as an entertainment business. Shopping centres borrowed from Performance Studies theories to create an “experience” for the shopper. We’d talk about creating shops people would be prepared to pay an entry fee to shop in.

But for 15 years, retailers have not built shops. They’ve built stores. Places that efficiently house lots of stock, delivered with efficiency and best practice logistics.

Stores are designed by technicians, who figure out the most efficient way to get people in the door, through the store and in front of the stock the retailer most wants to sell – then through the point of sale and out, to make room for more shoppers.

But that’s not shopping any more than takeout is dining. That’s consuming.

The truth is that Big Retailers have forgotten their job is not to be Store Managers, but to be Shopkeepers. Store Managers know how to store things. Shopkeepers understand shoppers.

Shoppers demand more respect than they’ve been getting. They expect their custom to be earned – if they’re not given a good reason to go out to shop, they’ll just shop from home. And for Big Blunt Retail, with thousands of efficient stores and a workforce of Store Managers, that’s a big problem.

Truth #3: It’s Not The Internet, Stupid

Big Retail got itself into this mess because it turned its back on the front of house and instead decided its money was made at the back dock.

As a result, it lost touch with its customer, and lost the skills of listening to and serving the needs of its shoppers.

Which is why Big Retail spent the past three years blaming the internet for its poor performance.

The industry would be ruined, we were told, unless the Government fixed the 10% GST disadvantage retailers face against online competitors. That’s typical of an industry that now sees its role in managing percentages in the supply chain, rather than managing its relationship with its shoppers.

And wrong. The customer called “liar” loud and clear – that there’s far, far more than 10% difference in the price of goods bought on the internet versus the prices in Australian stores. And a far, far better service experience shopping with even the most basic of e-tailers than with the biggest, bluntest bricks-and-mortar department stores.

The fact is shoppers don’t distinguish between buying in a store and buying online. They’re just shopping, and they’ll shop where the experience best meets their expectations.

And the fact is shopping online has become just a far better experience than shopping in stores. It’s intuitive. It’s connected. It’s real time. Help is right there when it’s needed.

How many Big Blunt retail stores can say all of that?

So is it too late for retail to save itself, or can it learn from its mistakes?

The bottom line is: the shopper drives the bottom line. Big Retail in this country unlearned that fact in the past 15 years, and needs to catch up fast.

Small retail stayed smart. The average franchisee, for example, never had the luxury of forgetting how to run a shop and how to look after his or her shoppers.

Nor could they afford not to invest in their brand – their franchise. Big Retail saw advertising as something it could put through procurement and make more and more efficient.

So Big Retail is pausing to reinvent itself. The greens shoots of a new era can be seen in the new campaigns for Woolworths, Bunnings and Coles and the attempts by the likes of Dick Smith to reconnect with their customers in the way the customer wants to shop.

But it will take more than a catchy jingle and some jingoism to win back those shoppers. Big Retail needs to get smart. It needs to pay more attention and listen more deeply. It needs to face the Truth.

Shopping online is fun. There are quirky stores with cool names and personalities an fun weird products (ThinkGeek springs to mind), there is instant customer service via chat and funky tools to picture yourself in clothes and gear.

Going to physical shops is a chore. No staff, no personality & no service.

People may pay a premium for quality some of the time, but they will pay more to be entertained.

Simon – it’s interesting that you haven’t mentioned price as a factor. The increase in savings combined with more frequent sales cycles and the ability for shoppers to instantly compare prices via the internet/smart phones, means that price is now becoming the main determinent of a massive number of purchase decisions. See Adam’s point about the retailers in the rich list – Zara, Walmart, Aldi, Ikea – are all value based retailers with incredibly sophisticated back end systems.
I think that the days of the Myer/Dj’s model – no matter how good the experience – is all but over.

There are different types of retail with quite different futures: Woolworths, Coles, and the like satisfy immediate requirements for everyday goods. Though the growth in farmers markets are affecting them in the highly profitable and difficult to compare price segment of fresh foods. Other retailers whose purchases are more able to be considered are the ones who are really going to suffer.

The Myers and DJs and the like are like the retailers of stuff associated with horse riding 100 years ago; a few sales will remain with enthusiasts, but by and large it is all over for them in the medium term. it is too late now to treat customers with respect, provide service and become their friends.

There’s another factor which rarely comes up in these discussions about the demise of retail. People now have enough stuff. How many flat screens or fridges or cameras or clothes do you have room for in your life? Watch the council pick-up rubbish piles and you’ll notice the big fat tvs which were being thrown out everywhere are making less of an appearance–they’ve now been replaced. And I’m yet to see a flat screen tv on the curb. We just don’t need any more stuff, so we’ve stopped buying it.

Australians spend more per capita at retail than nearly any other country. This hasn’t changed. People want to spend, in good times and bad. Lack of retail format diversity and differentiation, low customer service and in many cases inferior quality product has conspired against this . What you have is a two-way concentration issue. The sales are concentrated in centrally controlled and generally well-executed retailers (~80% at channel level) . The stores are concentrated by de-centralised operators, franchisees, etc. (50%+ at a channel level, and highest franchise levels in the world), where the compliance on retail standards is incredibly low and the store is effectively an ATM for the family that runs it, under-investing back into the business . Some chains will fall, many more indie’s – this rollup has happened in markets all over. Its now happening here.

Consumers want something better and something different. There’s profit for those who can deliver it.

Great article Simon, concise, thoughtful and objective plus your points ring very true. When I look at the state of bricks n’ mortar stores here in Australia I long for Selfridges in London which used to be a rundown, dowdy, backward looking institution but now is in itself a destination with many pockets of stimuli on each and every floor that DJs and Myer certainly could do with taking note of instead of just ‘efficiently housing stock’.

I couldn’t agree more with this. While (as some commenters mention) price plays a huge part in my purchases, I am willing to pay more for an experience. What springs to mind while reading this is the bookshop/coffee shop explosion. I’ll drink a coffee, read the paper and end up browsing for a few books. Half the time i’ll leave having spent $7 on coffee and $16 on a book. I know that I could get the same thing on thebookdepository for 3 or 4 dollars less, but i’m happy to pay the extra for the service, location, ease etc.
I agree with the article: retail isn’t dead but shops delivering an outdated experience are. At the end of the day it’s us who benefit.. so, bring it on eh?

@ Tim. I’m not entirely sure price is a factor in a lot of purchases. I know we all say how wonderful it is to have all this technology on hand to compare prices and shop smarter, etc, but who in all seriousness can justify the time it takes on most purchases? If everything is cyclical, then service is surely due to make a comeback in a big way. And why aren’t bricks and mortar retailers pushing their ‘have it now’ convenience instead of the ‘internet delivery wait’.
And, yes, great article Simon. Clearly you’ve sparked some good debate.

For many years I reluctantly siphoned a bucket load of my money to the likes of Myer and DJs. These days most of my cash is spent at online retailers selling books, fashion items, cosmetics and the like.
A trip to DJs & Myer at my local shopping centre last weekend reminded me of the virtues of online shopping. The women’s toilets were a disgrace (a common occurrence), the fitting rooms weren’t much better, and the “sales” women were much more interested in having a petty discussion about whose turn it was to take a 15 minute tea break. Honestly, I have seen this scenario repeated over, and over, and over again in the years I have frequented these stores.
I love shopping online. My toilet &closests are always clean, and I can make my own cup of tea to sip while I shop!

I bought a pair Adidas Copa Mundials for 80 pounds ($120 Australian) from a UK website (this is the price the Pom’s pay for them). I paid shipping on top and it still came in below $150. In Rebel Sports they are up for sale for $220.

If somebody can tell me why I should go to Rebel and pay $220, I would be interested to know?

“It may be hard to be a seller…. but its almost impossible to be a customer! ”

Too much choice, far less trust, not much differentiation and stuffed if I have the time to muck around researching on-line… Help me please!!! Brands (insert “experience, relevance, confidence and expectation”) used to help me “short cut” all that thinking and the burden of choice. We buy on “value”, not “price”. If I shop on price its because I’ve been left with no other differentiator to distinguish between products.

I don’t need much! Lets face it, “When your served Choko broth, even a small crouton attracts a lot of interest”

I agree with Peter Rush that most of us have over-much mundane stuff’ already.
However when I DO go to buy something, I don’t always know what it will be in advance? The job of the retailer is to create either a climate of desire /ambiance of unfettered perusal, (be it on-line or in the marketplace) OR to make a big pile of un-refuseable bargains. You will know what I mean by that, if you have been to Dimmeys of Lithgow, the ultimate bottom-end shopping experience. How I miss it . .

It is nice getting things online, arriving by mail. It feels like getting presents delivered.

@Nick Underhill: we would all love to know your local bookstore that sells just 3-4 bucks above Bookdepository. My experience is that most kinds of book are twice the price and upwards bought locally.

One thing I hate about bookstores here is having to walk around browsing Amazon on my phone to check reviews/details/titles/editions because the “terminals” in Australian bookstores are either unavailable, slow, useless or a combination of the above. I don’t expect staff to remember every last detail about every author and every title, I do expect them to give me easy access to find that out. Otherwise I’ll just be browsing Amazon, and noticing that the price is a fifth of the store’s price doesn’t exactly accelerate my purchase, even if I’m in an impulsive mood.

Great article. One of the big things that retail needs to address is parking. If you’re going to buy loads of stuff, you need a car to load it in and the shopping centres need to take this into account.
Westfield used to have a system where your parking was free if you spent over a certain amount. They have scrapped that and lost a huge amount of their shoppers with it. Yesterday, I was at the shopping centre with the intent to buy for about 5 major occasions (read: spend $1500+).
I got to about $800, realised that my three hours free was about to expire, thought “fuck you guys” and went home to spend the rest online.
It’s not about the money, it’s the lack of respect. If you want me to spend money instore (which I’d prefer to do) then give me my experience rather than slogging me for it at every opportunity.

“6 of the 10 worlds richest people are retailers. Ikea. Zara. H&M. Walmart. And Auldi.”

Mr BS, You will find that this listing will be very different in the years soon to come. Shops are doomed. It is an inevitabilty. And the fact that you have learnt how to be successful using them is your greatest disadvantage.

Great piece, Simon.
Years ago the Myer management people lived in the Bourke St premises, and were in touch with what was happening on the shop floor. They were doomed when they moved to Battlestar Galactica at Tooronga.
Most retailers have totally lost touch with their customers and as a result, at least from my point of view, treat them with contempt.
We used to laugh at the crap distribution channels in Japan, but we seem to have to arrived in much the same position, plus accept differential pricing (Oz is a small market/far away/blah blah), that’s why on-line prices are so much cheaper.
On-line is displacing physical shopping, shopping centres have displaced high street shopping, retail management doesn’t have a clue what to do; it’s a testament to our complacency as a comfortable nation, that retail sales have held up so well.

Nicely put Simon. It’s also interesting to observe how the big stores (Myer and DJ’s) are rapidly becoming nothing more than ‘showrooming’ playgrounds – places to try, then go home and buy online, cheaper and not necessarily from the store they went to.
Nothing new there I know, but it’s a nation of savvy and canny consumers (me included) that want honesty and value for money.
What also happened to the pride of being a shopkeeper/retail business? I say this, having dragged my teenage daughter around the fashion stores where we are presented with crumpled rags on hangers – winter coats and dresses fresh off the container from China, covered in packing creases. Nothing steamed or pressed and still smelling from the container they were shipped in. For this, the customer is still expected to pay a premium. It’s just another example of retailers talking down to their customers.
Down down service is down!

If you want your kids to have ‘part-time’ retail work in the future, then you need to support your local retailers now ..before they all disappear (encourage them to become shopkeepers). Avoid on-line shopping from abroad and support the locals where you live, work and play. C’mon Australia, let’s do it!

With so many people talking about the “death of retail”, it’s great to hear a different point of view.

Big retailers with undifferentiated products tend to use price as their primary source of competition. As soon as a better alternative came along (ie. cheap prices online), these retailers were backed into a corner and beaten at their own one-dimensional game.

The experience of “retail therapy” fulfils human needs beyond just buying stuff on the cheap; success requires looking beyond the obvious price-led strategy to demonstrate value. Those retailers that have thrived have managed to provide consumers with a reason to keep coming back beyond price.

As technology improves and digital is able to provide an increasingly immersive experience anywhere and anytime, how will bricks and mortar retailers continue to differentiate?

I buy all my desired items on line. For me the sites i shop at provide me a much better version of retail therapy than any physical shops. Better selection, delivered to my home. The 50-80% off prices is just a bonus.

Once people have experienced this. There is no way anyone will go back to being happy to pay for the retailers shops, their rents, their staff, their overheads, their management costs, their catalogues and TV ads, their celebrity models, their cocktail parties and so on and so on.

Better forget about holiday jobs working at DJ’s and learn to master the internet.

@ Gold Member.. so I’m guessing your place of employment also charges to cover “their rents, their staff, their overheads, their management costs, their catalogues and TV ads, their celebrity models, their cocktail parties and so on and so on”.. so as a ‘client’ myself.. I might go and find an alternate and cheaper agency on-line from abroad to get all of my marketing requirements from.. so I guess thaty means, you can join that long queue of employees trying to find ‘mastering the internet’ jobs out there.

I think you are right on the money. If customer’s are not getting what they expect for the price they are going to pay in stores they why would they shop there? They are going to head straight for the online option where at least they are getting some kind or service! Fast, efficient, door to door delivery and a wide variety of product to choose from.

I work in retail and have for 10 years. I am almost always thanked with such appreciation for my one on one service but when your boss keeps cutting shifts to save on costs you just cannot deliver that service anymore. That is where your store becomes a shop and people just don’t bother coming in at all. If you want your business to stand out you need to create a point of difference to stand out from the rest!

I used to run a creative ad agency, but i switched to internet enabled enterprises in 2008. Most of my talent is now based in India and other places. And i don’t need all the overheads i used to have to carry.

I believe what Bill Gates once said; “If it can be digital, it’s going to be digital”, and one of my big launches later this year is a digital department store, carrying all the big designer brands at 50-80% off prices, and Amazon is doing my fulfilment.

If you don’t like the idea of reinvention, perhaps you will find irrelevance less appealing.

Agree one hundred percent. I much prefer my local con the fruiterer to woolies because he’s been there forever and knows what I like. He’ll knock 20% off stuff and tell me to use it that night. He works twice as hard because he has to, and the difference in price is minimal.

But here’s a thought:

Benefits of online are it’s cheaper and more competitively priced with store prices in Europe and America, not mentioning china deliberately.

Disadvantages are huge. You can’t take an item back, you need to wait up to 30 days to have it, and unless you’re ‘pre-shopping’ somewhere else, you can’t try before you buy.

So why don’t retailers just sell for a more competitive price and add the benefits of service? Take the chinese model of selling 100 pairs of jeans at a dollar profit on each rather than the american model of selling 10 pairs at 10 dollars profit?

Why don’t retailers sign exclusivity arrangements so you can only buy in store, and the manufacturer can’t ship direct?

We’re not talking about a few dollars difference, we’re talking in the hundreds for most items, which end up being fire-saled a few months later. If we can buy online at a reasonable price, surely, in bulk and at wholesale price, retailers can do the same and cover all the other expenses, while providing a decent, expert experience.

Tell the landlord to cut his rents, tell the government to quit the GST, tell the staff to take a cut in their award wages, tell the staff to also forego their employer superannuation contributions.. tell the ad agency to cut their profit.. then bricks and mortar retailers may be able to compete more on price.

@Gold member, great news! You have single handedly destroyed more of the retail workforce.. (but good on you for helping the Indians) all’s good, just as long as YOU keep your overheads down. And thanks for the heads up ..I will be avoiding your “digital department store, carrying all the big designer brands at 50-80% off prices, with Amazon doing your fulfilment.” like the plague!

Great article (sorry – very late to the comment party on this one). The golden nugget in there is Truth #2. Through once again retailing rather than simply stocking, there is a massive opportunity for retailer to engage purchasers at FMOT (FInal Moment of Truth) and create a sale. Environment, staff education, service levels are all the differentiators which can help retailers gain back lost sales.

Of course online shopping will only grow, and retailers must blend and blur the channels through which they operate, but whether its digital or physical… proper retailing and not stock keeping will help them not only survive but grow.